Economic data weigh on gold futures

SAN FRANCISCO (CBS.MW) -- Fresh U.S. economic data provided an upbeat picture that strengthened the dollar and dulled gold, which fell Wednesday after three previous gains.

Gold for December delivery closed at $373.10 an ounce on the New York Mercantile Exchange, down $3.10. It closed at a one-week high on Tuesday.

"Precious metals continue their correlation to the greenback ... as good New York state employment index numbers turn positive for the first time in over a year," Graham Leighton, a metals analyst at Societe Generale, told clients in a note.

Business conditions at manufacturers in the New York region improved substantially in October, the Federal Reserve Bank of New York said Wednesday. The Empire State Index rose to a record 33.7 in October from 18.4 in September. See full story.

Meanwhile, U.S. seasonally adjusted retail sales fell 0.2 percent in September, the Commerce Department said Wednesday. It marked the first decrease since April, but the data generally met expectations of Wall Street economists when compared against upward revisions made to August's sales data. See full story.

The upbeat data lifted the dollar, making gold less attractive to investors. The precious metal is denominated in dollars and used as a hedge against losses in the stock market. See Currencies report.

Currency drivers

Over the long term, "the dollar is the fundamental driver behind this gold market," said Brien Lundin, editor of Gold Newsletter. But in the short run, "the gold market is a bit listless, as Asian buying -- which has provided a strong underpinning to the price recently -- has slacked off in advance of President Bush's trip to Japan."

The president's recent criticisms of Japanese and Chinese intervention to support the dollar, balanced against his administration's insistence that it supports a strong dollar policy, have "led to some confusion and concern in the currency markets over what may result from his upcoming visit to Asia," he explained.

"This has dampened Asian gold buying a bit, as the market seeks direction," he said. But the respite won't likely last long, he said, with physical demand in Asia likely to quickly pick up as "bargain-hunting retail buying kicks in again at these price levels."

Ashanti recommends AngloGold bid

Ashanti's board said late Tuesday that it's recommending an improved final merger offer from AngloGold
AU, -3.70%
that values Ashanti at $1.43 billion.

Under the revised merger proposal, Ghana-based Ashanti's shareholders will get 29 new AngloGold ordinary shares for every 100 Ashanti ordinary shares they own.

The deal values Ashanti at about $10.97 per share, Ashanti said.

In late September, Randgold Resources
GOLD, -2.05%
submitted a formal bid for Ashanti that valued Ashanti at about $1.8 billion, according to Randgold. See related story. That bid trumped an earlier $1.1 billion rival bid by AngloGold.

Early Wednesday, Randgold CEO Mark Bristow pointed out that the value of the improved final offer from AngloGold is still below that of Randgold's original offer, as well as Ashanti's Oct. 14 closing price. Randgold's board is now reviewing its position regarding the offer for Ashanti.

Following the developments, shares of Ashanti closed at $10.74, down 77 cents, or 6.7 percent, while AngloGold fell by 22 cents to close at $37.32 and Randgold ended the session at $22.84, down 5 cents.

Also in the news, Freeport-McMoRan Copper & Gold
FCX, +0.96%
announced a major increase in its quarterly dividend, to 20 cents a share from 9 cents, and was authorized to buy back up to 20 million common shares. Freeport-McMoRan's stock tacked on 5 cents to close at $37.19.

Platinum drops to two-month low

Elsewhere in the metals sector, futures prices for palladium futures fell 7 percent to close at their lowest level in about two months as traders continued to assess the metal's supply and demand prospects.

"Palladium has finally broken lower as stagnant demand and the prospect of rapidly rising mining supplies weighed on the metal," said James Moore, an analyst at TheBullionDesk.com in London.

December palladium closed at $191.65 an ounce, down $14.40. The contract has already fallen over the past three sessions.

Its sister metal, platinum, saw its January futures contract fall by $5.80 to close at $721.20 an ounce.

Meanwhile, the latest economic data boosted the industrial demand outlook for both silver and copper.

Against that backdrop, December silver climbed by 1.5 cents to close at $4.947 an ounce, and December copper rose 2.4 cents to end the session at 89.8 cents a pound.

On the supply end, gold inventories stood at 2.82 million troy ounces, down 2,812 troy ounces as of late Tuesday.

Silver stocks rose by 2.1 million troy ounces to reach 109 million and copper stood at 297,312 short tons, unchanged from the previous day.

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